Ruling Over the World’s Economies

Developing economies quickened the pace of their business reforms during the last 12 months to make it easier for local businesses to start and operate, says the World Bank Group’s annual ease of doing business measurement.

Doing Business 2016: Measuring Regulatory Quality and Efficiency finds that 85 developing economies implemented 169 business reforms during the past year, compared with 154 reforms the previous year. High-income economies carried out an additional 62 reforms, bringing the total for the past year to 231 reforms in 122 economies around the world.

The majority of the new reforms during the past year were designed to improve the efficiency of regulations, by reducing their cost and complexity, with the largest number of improvements made in the area of Starting a Business, which measures how long it takes to obtain a permit for starting a business and its associated processing costs. A total of 45 economies, 33 of which were developing economies, undertook reforms to make it easier for entrepreneurs to start a business. India, for example, made significant improvements by eliminating the minimum capital requirement and a business operations certificate, saving entrepreneurs an unnecessary procedure and five days’ wait time. Kenya also made business incorporation easier by simplifying pre-registration procedures, reducing the time to incorporate by four days.

Efforts to strengthen legal institutions and frameworks were less common, with 66 reforms implemented in 53 economies during the past year. The largest number of such reforms were carried out in the area of Getting Credit, with 32 improvements, of which nearly half were undertaken in Sub-Saharan Africa.

“A modern economy cannot function without regulation and, at the same time, it can be brought to a standstill through poor and cumbersome regulation. The challenge of development is to tread this narrow path by identifying regulations that are good and necessary, and shunning ones that thwart creativity and hamper the functioning of small and medium enterprises. The World Bank Group’s Doing Business report tracks the regulatory and bureaucratic systems of nations by conducting detailed annual surveys. For policymakers faced with the challenge of creating jobs and promoting development, it is well worth studying how nations fare in terms of the various Doing Business indicators,” said Kaushik Basu, World Bank Chief Economist and Senior Vice President.

Doing Business data for the past 12 years shows that in 2003, it took an average of 51 days worldwide to start a new business. This has now been more than halved to 20 days. In addition, the data shows encouraging signs of convergence toward best practices, as lower-income economies have shown more improvement than high-income economies over time. The case of Mozambique illustrates this trend. In 2003, it took an entrepreneur 168 days to start a business, but now it only takes 19 days.

The report also notes the increasing use of the internet for entrepreneurs to interact with the government, given the potential economic benefits of providing online electronic services across all areas measured by Doing Business. In the past year, 50 reforms were aimed at providing or improving online tax payment systems, import-export document processing, and business and property registration, amongst others.

This year’s report unveils a two-year effort to significantly add more measurements of the quality of institutions supporting the business environment, to better capture realities on the ground. For example, in the area of Registering Property, a new index on the quality of land administration measures the reliability, transparency and geographic coverage of land administration systems as well as aspects of dispute resolution for land issues.

Regulatory quality matters as much as regulatory efficiency, says the report, to ensure that the regulation achieves the aim of creating an enabling environment that contributes to economic growth and prosperity for people.

“There is persuasive research that shows how efficiency and quality of business regulations go hand-in-hand with producing more competitive, viable companies and firms that help to grow national economies. The increased emphasis on the quality of regulation, to complement the previous focus on efficiency, is aimed at providing greater clarity between well-designed and badly-designed regulations, making it easier to identify where regulation is enabling businesses to thrive and where it has the opposite effect,” said Augusto Lopez-Claros, Director of the World Bank’s Global Indicators Group, which produces the report.

Economies of Europe and Central Asia have performed well on the new quality benchmarks, while those in the Middle East and North Africa region have performed less well.

In the global ranking stakes, Singapore retains its top spot. Joining it on the list of the top 10 economies with the most business-friendly regulatory environments are New Zealand, in second place; Denmark (3); Republic of Korea (4); Hong Kong SAR, China (5); United Kingdom (6); United States (7); Sweden (8); Norway (9); and Finland (10).

The world’s top 10 improvers, i.e. economies that implemented at least three reforms during the past year and moved up the rankings scale, are Costa Rica, Uganda, Kenya, Cyprus, Mauritania, Uzbekistan, Kazakhstan, Jamaica, Senegal, and Benin.

By region, Sub-Saharan Africa accounted for about 30 percent of the improved global regulatory reforms and half of the world’s top 10 improvers. Multiple reforms were also implemented n Côte d’Ivoire, Madagascar, Niger, Togo and Rwanda. The region’s highest ranked economy is Mauritius, which has a global ranking of 32.

Europe and Central Asia region was also a major reformer during the past year, with Cyprus, Uzbekistan and Kazakhstan, amongst the world’s top 10 improvers. The region had both the largest share of economies implementing at least one reform and the largest average number of regulatory reforms per economy.

In South Asia, six of the region’s eight economies implemented a total of nine reforms – the second largest share of any region after Europe and Central Asia. Economies that implemented several reforms included India, Bhutan and Sri Lanka. The region’s highest ranked economy is Bhutan, which has a global ranking of 71.

Reform activity continued apace in East Asia and the Pacific, with more than half of the region’s 25 economies implementing a total of 27 reforms in the past year. The region hosts four of the top five ranked economies in the world, including Singapore, the world’s top ranked economy.

In the Middle East and North Africa, reform activity picked up slightly with 21 reforms implemented in 11 of the region’s 20 economies. Economies that undertook more than one reform included the United Arab Emirates (UAE), Morocco, Tunisia and Algeria. UAE is the region’s highest ranked economy, with a global ranking of 31.

Latin America and the Caribbean region had the smallest share of reforms, with less than half of the region’s 32 economies undertaking a total of 24 reforms. Costa Rica and Jamaica were among the world’s top 10 improvers. Mexico is the region’s highest ranked economy, with a global ranking of 38.

“It is heartening to see so many economies, particularly low-income economies and fragile states, undertaking reforms to improve the business environment for local entrepreneurs. In time, this can result in increased job creation, economic growth and greater prosperity for their people,” said Rita Ramalho, Manager of the Doing Business project.